Boyd Gaming Jumps 14% After MS Upgrade

By Sam Mamudi

Shares of Boyd Gaming (BYD) are popping this morning, up more than 14% to about $9.40 after Morgan Stanley upgraded the stock to Overweight and raised its price target to $12 a share.

Morgan Stanley’s thesis is that by 2020 online gambling in the U.S. will be as big as a business as today’s real-world gambling centers of Las Vegas and Atlantic City combined; New Jersey’s approval of online gambling in late February is the first step to the sector really taking off.

The analysts see Boyd as the best play on that trend:

In our base case (now factored into our BYD estimates), we model the legal US online gaming market to be ~$670 million in 2014, increasing to $9.3 billion in 2020 (55% CAGR). Put into context, by 2020, we estimate online gaming in the US to be the same size as the current Las Vegas Strip ($6.2 billion of gaming revenue in 2012) and Atlantic City ($3 billion in 2012) markets. Note the US online gaming market was estimated to be $5.3 billion ($7.5 billion adjusted for inflation) before it was banned in late 2006.

We believe our market estimates are conservative.

They also provide this handy visual of what that could look like:

(Click on image for larger version.)

As for Boyd specifically:

We view BYD as best positioned stock in our US coverage to benefit from the US online gaming opportunity given its positioning and relative size. BYD currently has a $710 million market cap, is 7x levered, and we expect it to generate $634 million of 2013 EBITDA. The other well positioned operator in our coverage for online is MGM Resorts International (MGM) but it has a market cap of ~$6 billion and we expect it to generate ~$2 billion of EBITDA in ‘13e, making online less of a driver.

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